Retirement Division, Forensic Accounting and Business Valuation Blog

  • Home
    Home This is where you can find all the blog posts throughout the site.
  • Categories
    Categories Displays a list of categories from this blog.
  • Tags
    Tags Displays a list of tags that has been used in the blog.
  • Bloggers
    Bloggers Search for your favorite blogger from this site.
  • Team Blogs
    Team Blogs Find your favorite team blogs here.
  • Login
Recent blog posts

If you are set to receive a portion of your ex’s retirement account via a Qualified Domestic Relations Order (QDRO), you earn the title of Alternate Payee. This is simply the title that ERISA law gives to anyone who will receive funds from another’s qualified retirement plan.

 

But becoming an Alternate Payee gives you more than just the title. You will also receive certain benefits, because you are considered a beneficiary of the plan. One of these is that you are entitled to receive copies of a variety of plan documents upon written request. These include a summary plan description, the latest annual report, any final annual report and the bargaining agreement, trust agreement, contract or other document under which the plan is established or operated.

While the plan administrator may impose a reasonable charge to furnish copies of these documents, the Department of Labor (the entity that oversees ERISA law) takes the position that once an Alternate Payee becomes a beneficiary under a plan, the Alternate Payee should automatically be furnished at least the summary plan description, summaries of material plan changes and the plan’s summary annual report.

For more information, see ERISA §§ 104, 105, 206(d)(3)(J), 404(a); 29 CFR § 2520.104b-1 et seq.

Hits: 28 0 Comments

Nothing in the ERISA rules requires that a Qualified Domestic Relations Order (QDRO) be issued as a separate judgment, decree or order. And while this might tempt someone to try and incorporate the terms of the QDRO into the final Judgment of Divorce, there are a few reasons why this is not the preferred way to handle the QDRO.

 

Size - QDROs are often lengthy documents on their own. They must contain specific ERISA requirements to qualify as a QDRO, and depending on the details of your negotiations, will likely also include much more additional language. The sheer volume of contents makes it unwieldy to incorporate the QDRO into your standard divorce judgment, without risk of missing an important detail.

 

Privacy – It is generally good practice to submit a draft QDRO to the plan administrator for pre-approval, before obtaining the court’s signature. If you incorporate the QDRO into the general divorce decree, then you will also be sharing all your divorce details with a total stranger, keeping the QDRO separate allows you to share only what the administrator needs to determine the QDRO’s validity under the terms of the plan.

...
Continue reading
Hits: 48 0 Comments

One of the most-often asked questions my clients ask me is whether the amount they will receive from a Qualified Domestic Relations Order will be taxable to them. The answer, as with most things related to taxes or the law, is – it depends.

Check out this short video from my QDRO FAQ collection to find on how and when QDRO proceeds are taxed.

Hits: 54 0 Comments

Given their important role in the processing of a Qualified Domestic Relations Order (QDRO), it is vital to know what the Plan Administrator is required to do when presented with a proposed QDRO.

 

One important task is to keep the parties updated on the status of the QDRO. This comes in the form of notice when a decision is made regarding the validity of the document. A Plan Administrator is required to notify the plan participant and alternate payee(s) when the Administrator makes a final determination as to whether the order constitutes a valid QDRO.

 

This notice must be in writing and furnished promptly after a decision is made.

...
Continue reading
Hits: 53 0 Comments

Posted by on in Common QDRO Mistakes

When it comes to receiving money, the one certainty is that Uncle Sam is usually looking for his slice of the windfall pie. Distributions from a Qualified Domestic Relations Order (QDRO) is no exception.

 

Most people recognize that a plan participant must pay taxes on any distribution of QDRO benefits they receive. However, what are the tax liabilities facing an alternate payee?

 

When the alternate payee is a spouse or former spouse who receives a share of the QDRO benefits from a retirement plan, he or she is also required to report the money received as if they were the actual plan participant. However, the spouse or former spouse is also entitled to a share of the participant’s cost basis (their investment in the contract). According to the IRS, the alternate payee’s share is equal to the participant’s cost basis multiplied by a fraction. This fraction is calculated as follows:

...
Continue reading
Hits: 62 0 Comments

One of the key players in any Qualified Domestic Relations Order (QDRO) is the Plan Administrator. This is the individual who has a fiduciary duty to the plan participants to ensure the plan is managed appropriately. So when it comes to dividing up a qualified retirement account between divorcing spouses, the Plan Administrator (PA) plays an important role.

 

The PA is the individual who will determine the validity of the QDRO, and he or she must do this within a “reasonable period of time” according to ERISA law. But what is “reasonable” will depend on the specific cirumstances of each case. And a lot has to do with the clarity of the QDRO from the start.

 

For example, a QDRO that is clear and complete when initially submitted should take less time to review and approve than one that is missing critical information or unclear in its directives.

...
Continue reading
Hits: 126 0 Comments

A Qualified Domestic Relations Order (QDRO) is a legal document that creates and recognizes the rights of an alternate payee with regards to future benefits payable to a participant of a retirement plan. QDROs are primarily used as part of divorce proceedings, when one of the spouse’s retirement plans needs to be divided between the parties as part of the final property settlement. Without a QDRO, many retirement plans could not be divvied up between the spouses which could result in unfair property divisions.

 

The QDRO is the legal document that the retirement plan administrator relies on to divide a participant’s account. If the QDRO is not prepared properly, the plan administrator will not be able to divide the plan, leaving the non-participant spouse without his or her anticipated share of the other spouse’s retirement account.

 

As the name implies, a QDRO is limited to use in domestic dissolution cases. In fact, the law is very strict on the terms of the QDRO, especially when it comes to naming the Alternate Payee. In order for an order to qualify as a QDRO, an alternate payee cannot be anyone other than a spouse, former spouse, child or other dependent of a plan participant.

...
Continue reading
Hits: 67 0 Comments

In order to effectuate a valid Qualified Domestic Relations Order (QDRO), the final document requires three signatures – those of each spouse plus the court. However, in some contentious cases, the spouse who owns the retirement account digs in their heels and refuses to sign. Obviously, this creates an issue for the other spouse, who is waiting for their share.

 

While these situations are not common, it does put additional strain on the spouse who wants to finalize the QDRO and receive their money from the account. When a recalcitrant spouse refuses to sign, it may require another trip in front of the judge.

 

All QDROs arise from either a negotiated agreement or previous court order. Refusing to sign the QDRO is a violation of a court order, and equates to contempt of court. Often, the threat of a contempt action is enough to get the reluctant spouse to sign off. However, sometimes your family law attorney will need to file a motion to bring the matter formally before the court.

...
Continue reading
Hits: 80 0 Comments

If you’re going through a costly and lengthy divorce, the last thing you want to consider is adding another professional to the mix. However, trying to cut corners and save a few dollars during this tumultuous time can often end up costing you far more in the long run – especially if your marriage is one that is considered a high net worth union.

 

While in many straightforward divorces, it may be simple enough to take an across-the-board equal division of retirement accounts, sometimes there are special circumstances that require the alternate payee to seek out certain assets in lieu of simple division of a retirement account. This is especially true when the other party may have things like stock awards or post-tax contributions in their retirement accounts.

 

A CPA can help you identify the pros and cons of every property division scenario, including identification of long-term tax implications for you. This is especially helpful if you will be dividing retirement accounts as part of your property division. In those cases, many people plan to take some of a retirement account distribution as cash. They do this in order to pay off debts that linger after the divorce.

...
Continue reading
Hits: 69 0 Comments

It is no secret that divorces can take upwards of a year to complete, sometimes longer. During what seems like the endless pendency of the proceedings, spouses can often get lost in the day-to-day decision making that comes along with deciding custody, support and property division. Often times, the less obvious details fall through the cracks.

 

One area where this often happens is with retirement account valuation and division of defined contribution plans.

 

Often times, the employer elects to make annual contributions rather than monthly ones. In these cases, especially if the divorce concludes close to the end of the year, the spouse standing to receive a portion of the plan participant spouse’s account could lose out on valuable plan assets.

...
Continue reading
Hits: 95 0 Comments

Qualified Domestic Relations Orders (QDROs) are an integral part of many divorces. These legal documents are what gives one spouse rights to some portion of the other spouse’s retirement account. A QDRO is routinely used to ensure equitable division of the marital estate.

 

But drafting an appropriate QDRO, one that satisfies ERISA rules and pleases the plan administrator, is not as straightforward as most people would like.  Omitting required elements – or adding in unnecessary provisions – can quickly extinguish the QDROs validity. In such cases, an alternate payee can lose his or her rights to their benefits.

 

Required Elements of a Valid QDRO

...
Continue reading
Hits: 105 0 Comments

Posted by on in Common QDRO Mistakes

If you will be involved with a Qualified Domestic Relations Order (QDRO) now or in the future, the first step is understanding the specific language surrounding these complex legal orders. Here are a few of the most common phrases.

 

Alternate Payee – This can be a spouse, former spouse, child, or other dependent of a plan participant, who is recognized by a domestic relations order as having a right to receive all or a portion of the benefits payable under the plan. 29 U.S.C.A. §1056(d)(3)(J).

 

Plan Participant – This is an employee or former employee who is entitled to a benefit from an employee benefit plan. 29 U.S.C.A. §1002(7).

...
Continue reading
Hits: 83 0 Comments

Recently, I blogged about the use of a QDRO to collect child support arrears. When that method is successful, the support payee is happy – until tax implications come up.

 

But when a QDRO is used for this purpose, who is stuck with the tax obligations on the distribution? Could seeking support relief in the form of a QDRO distribution put additional financial burden on the already beleaguered payee?

 

No.

...
Continue reading
Hits: 112 0 Comments

If you are the custodial parent with a child support award, nothing is more frustrating (and even financially devastating) as having the other parent refuse to pay court-ordered support. Returning to court, time and again, to get this “deadbeat” parent to honor their financial obligations to your child can seem like an endless endeavor, with limited success.

 

However, there is one asset that these “deadbeats” often have, that is many times overlooked when a struggling ex seeks satisfaction of the support order. What is this overlooked resource? Retirement accounts.

 

Many individuals who owe accrued support obligations are covered under a defined contribution plan, like a 401(k) or profit-sharing plan. In those cases, the value in those accounts is available via QDRO to satisfy support arrearages.

...
Continue reading
Hits: 219 0 Comments

When your divorce requires a Qualified Domestic Relations Order (QDRO) to ensure a fair division of the marital assets, understanding the process of preparing and executing a valid QDRO becomes critically important.

 

There are five basic steps to acquire a valid QDRO.

 

Step 1 - Collect Information

...
Continue reading
Hits: 192 0 Comments

The road to a valid and effective QDRO is long and complicated. There are a number of entities involved in the process, including the plan participant, alternate payee, retirement plan administrator and the courts or other administrative agency signing the order. However, on a practical level, there is one principal player when it comes to QDROs - the plan administrator.

 

Under federal U.S. law, the administrator of a retirement plan is also the entity responsible for determining the validity of a QDRO. While this may seem like a lot of unfettered authority, it is important to understand why this authority exists. (It is also important to know that any final decision made by a plan administrator is reviewable in federal court.)

 

Why does a plan administrator have so much power? The plan administrator has a fiduciary duty to the plan and its participants. Part of these responsibilities include ensuring that any changes to the recipients of distribution under the plan (e.g. the purpose of a QDRO) are authorized by law.

...
Continue reading
Hits: 117 0 Comments

Although it doesn’t happen often, there is always the possibility that a retirement plan that is the subject of a Qualified Domestic Relations Order (QDRO) may be prematurely terminated. One question the alternate payee would certainly have in this case is what happens to their interest in the plan?

 

The Department of Labor takes the position that, in the event of plan termination, the rights granted by a QDRO must be treated as though the terms of the QDRO were part of the original plan. If an alternate payee is granted part of the participant’s benefits via QDRO, the plan administrator must provide the alternate payee with the same notification, consent, payment or other rights that go to the plan participant themselves.

For additional information, see ERISA §§ 206(d)(3)(A), 403(d)

Hits: 211 0 Comments

All retirement plans serve the same general purpose – to provide financial security in your golden years. Yet, there are many different ways these plans help meet this goal, and many different types of retirement plans. This can create issues for the unwary when it comes to divorce and division of these complex assets.

 

Most people are familiar with individual retirement accounts (IRAs). These are funded by individuals, without respect to their current, past or future employer. Beyond IRAs, however, most people also have employer-sponsored retirement plans. It is here where unwary plan participants and divorce attorneys struggle when it comes to dividing up accounts in the event of a divorce.

 

Employer-sponsored plans are classified as either qualified or non-qualified. Qualified plans satisfy federal requirements and are eligible for special tax treatment. They also are subject to ERISA law and QDRO treatment in a divorce.

...
Continue reading
Hits: 194 0 Comments

I’ve blogged about this topic before – the hidden “administrative” fees that some qualified retirement plans levy when a Qualified Domestic Relations Order (QDRO) is used to divide the plan. These fees are often exhorbitant, but perfectly legal under current law governing this area.

 

However, for unwary clients and their attorneys, finding out after the fact that an additional $400 - $1,500 fee is coming out of their share of the QDRO proceeds can be devastating. The best way to avoid such surprises is ascertaining at the very start what fees the plan will charge for QDRO work. Not all plans charge the fee. And sometimes, in the case of third-party plan administrators, the fee can be negotiated.

 

...
Continue reading
Hits: 251 0 Comments

Retirement plans. They all achieve a similar purpose, allowing people to stockpile resources to use in their golden years. And while the financial security these accounts can provide, not all plans are created equal. This is especially important to understand in the context of dividing retirement accounts during a divorce.

 

Most people are familiar with individual retirement accounts (IRAs). These are funded by individuals, without respect to their current, past or future employer. Beyond IRAs, most people have also encountered employer-sponsored retirement plans through work. These plans are classified as either qualified or non-qualified. Qualified plans satisfy federal requirements and are eligible for special tax treatment.

 

Qualified plans can be further categorized as follows:

...
Continue reading
Hits: 200 0 Comments